Humorless disclaimer: Nothing on this blog is meant to constitute legal advice. This blog doesn’t create an attorney-client relationship. This blog is not soliciting business. The accuracy of statements made in this blog is not guaranteed. The views expressed herein are those of the authors only.

injunctions

March 12, 2012

To the extent I’ve had time to post over the last few months, most of the posts have been devoted to the adoption of legislation enabling 18-month publication of patent applications in Israel, and in particular to the ongoing deliberations in the Knesset’s Constitution, Statute and Law Committee in this regard. Today’s post is no different, since today and tomorrow, the committee will meet again to consider this bill.

Early Publication

At present it appears likely that the bill will pass in a form that requires publication of all patent applications, including those that are presently pending. As I’ve argued before, I think this is unfair to applicants who filed their patent applications under the current, no-publication-until-acceptance-of-the-application system. I have no doubt that the vast majority of applicants have no objection to their presently pending applications publishing, particularly since, in most cases, corresponding applications have published abroad. Nevertheless, I am equally certain that there are a handful of applications that were filed because their owners knew that the contents of the applications would stay secret until the conclusion of substantive examination, and/or whose owners have made business plans in reliance on such secrecy. It’s not fair to change the rules for those applicants in the middle of the game. If one conceives of the patenting process as a contract between the state and the applicant, forcing early publication of an application after telling the applicant that his application will remain secret constitutes a breach of the contract on the part of the state. (For that reason, one wonders if a clause forcing publication of all pending applications would hold up to so-called constitutional scrutiny before the so-called High Court of Justice.)

Rather than requiring publication of all pending applications, the statute should provide an opt-in clause: those applicants who want their pending applications to publish now should be allowed to tell the ILPTO to publish such applications. This would largely achieve the goals of early publication, without adversely affecting those applicants who have relied on the non-publication in making their businesses decisions until this point.

There is, however, another aspect of this legislation that I haven’t previously discussed: the hypocrisy that lies behind this amendment. It’s no secret that the USA, in particular the Department of Commerce and the U.S. Trade Representative, been pressuring Israel for some time to adopt an 18-month publication regime. To this end, the U.S. Commerce Secretary and Israel’s Minister of Trade signed an agreement two years ago that stipulated, inter alia, that Israel would adopt such regime (in exchange for the USA calling Israel a good guy and taking off the USTR’s list of bad guys who don’t honor IP, like China; I’ve written before about the ludicrousness of that comparison).

Now, there are good arguments in favor 18-month publication regimes, which explains why they are the standard in the developed world. Indeed, Israel likely would eventually have adopted such a regime even without prodding from the USA, as there’s no real opposition in Israel to 18-month publication. But in negotiating with the USA, apparently no one on either side checked to the situation regarding 18-month publication in the USA itself before proposing what Israel should do. That, or the Americans feel free to be hypocrites. I say that because, as anyone familiar with US patent law knows, when the USA adopted early publication in 1999, it didn’t make publication compulsory for all applications. Publication only applied for applications filed after a certain date, and even then, applicants could opt out of publication, by signing a statement that no corresponding application had been filed in an early-publication country. The penalties for falsely making such a statement are draconian – you lose your patent – but in principle your application need not be published before it is granted.

That being the case, why on earth has Israel agreed not only to publish all applications in the future, but even to publish currently pending applications? The USA did neither of these things. In this case, what’s good for Uncle Sam should be good enough for Uncle Moshe. I doubt that today and tomorrow, the Knesset committee is going to tell the Americans where can they put their “early publication for all” demands, but it would sure be sweet if it did.

Rescinding A Wrongly-Decided Supreme Court Decision

Israel’s Supreme Court has a reputation as the world’s most activist court. This reputation has been earned primarily in its role as the so-called High Court of Justice, which hears claims against state activity, but the Court’s activism extends to the civil sphere too, including the IP arena. To illustrate:

Imagine you’re a manufacturer of air conditioning vents. You see that a competitor has a very successful model of vent. After doing some research you discover that his vent is a copy of a vent that was invented abroad by someone else many years ago. Or you find that although your competitor developed the vent himself, he never sought to protect it via a patent or registered design, even though such protections are available by statute in Israel. Or that in fact, he patented it, but the patent expired last year. Being a logical person, you would conclude that under the circumstances, not only are you free to manufacture and sell your own version of the vent, but that you can market for a lower price, thus benefitting consumer.

Unfortunately, you’ve overlooked the fact that you’re in Israel, where marriages between logic and public policy are infrequent and purely coincidental. In the present case, we have a flawed 1998 Supreme Court decision, popularly known as the AShI”R decision, that gums up the works. In AShI”R, various parties who produced articles which were not protected by patent or other intellectual property laws – either because the parties hadn’t sought IP protection, or because IP protection wasn’t available (e.g. because the article was already known and therefore not patentable), or because the parties had availed themselves of statutory IP protection but it had expired – sought relief against competitors who copied their products. The Supreme Court ruled that they were entitled to protection. In so doing, the Court turned logic, and the rationale behind the country’s patent and design legislation, on its head. How so? (If you’re an IP practitioner, the next paragraph will be clear to you, so skip ahead.)

Modern patent regimes are based on a quid quo pro: in exchange for disclosing a new and non-obvious invention, in a manner that enables competitors to copy the invention, the state grants the inventor a limited period of exclusivity – currently 20 years from the date of filing the patent application – during which the inventor can prevent others from making, using, selling, or offering to sell the invention. The expected receipt of such a period of exclusivity encourages investment in R&D, particularly in areas where high outlays of capital are necessary to bring a product to market. The grant of the exclusivity, which is a matter of public record, encourages others to develop new, non-infringing ways to compete, which usually leads to more efficient technologies and lower prices. The temporal limitation of the exclusivity ensures that even if no non-infringing alternatives are developed, competition will eventually be possible, along with concomitantly lower prices; it also allows competitors to make business decisions on the basis of predictable dates, viz. the expiration date of the patent. The logic behind design protection is similar, although the investment involved is usually smaller, and the scope and duration of protection more limited.

In AShI”R, the Supreme Court ignored the patent and design statutes and the public policy considerations underlying them, and in effect said that copying per se is bad, even though the Knesset, in accordance with sound economic policy, had already determined that copying per se isn’t bad. As the Aramaic expression goes, kulei alma lo pligei (everyone agrees – except, apparently, Israel’s Supreme Court) that a party that chooses not avail itself of the protection afforded by IP statutes should not be entitled to such protection through the backdoor of the courts; among other things, to provide protection in such cases undermines the predictability that the patent statute seeks to provide, and discourages the public disclosure that the patent statute seeks to obtain.

The egregiousness of the Court’s decision is all the more true in cases in which patent protection isn’t available, either because the article in question isn’t substantively patentable (it was known or is obvious over what was known) – society has no interest in granting exclusivity on something that’s already known – or because patent protection for the article being copied has already been exhausted, in which case the Court’s decision effectively amounts to an extension of the patent term for an indeterminate length of time, and an abrogation of the contract between the state and inventor when the state agreed to give the inventor a 20-year term of protection. (Indeed, the patent statute includes provisions for the extension of patent term, but they apply to a narrow set of circumstances that do not include any of the situations under consideration in AShI”R.)

More than 13 years after the AShI”R decision was handed down, the Knesset may finally be poised to lay this bit of judicial folly to rest. The 18-month publication to be discussed in committee today and tomorrow also contains language that would effectively rescind AShI”R with respect to patents, in so doing reinforcing the patent regime in Israel. According to the bill, a court would be precluded from hearing a claim based on the manufacture, use, sale or offer for sale of an invention that is unpatented, irrespective of the reason why that invention is unpatented.

Of course, it ain’t over till it’s over, so it’s possible that despite unusual consensus in the legal, business and academic communities about the need to rescind AShI”R, political machinations may do their worst, and this provision of the bill may be buried in committee in order to placate the whims of certain individuals with their own agendas. Here’s cautious optimism that the MKs on this committee will do the right thing and restore the patent statute’s primacy in governing the protection of new and non-obvious inventions.

May 14, 2010

A copyright case on the US Supreme Court’s docket for next year has caught the attention of the patent community.Recently the Second Circuit showed why that interest is justified.

The copyright case, Costco Wholesale Corp. v Omega S.A., Docket No. 08-1423, involves the sale by Costco of Omega watches originally purchased outside the USA.Costco sold the watches in the USA for significantly less than the retail price suggested by Omega.Since the watches were imprinted on the back with what Omega calls a “globe design”, which Omega had registered with the Copyright Office, Omega filed suit and sought an injunction.Apparently Omega had put the design on the watches specifically for the purpose of being able to file a copyright infringement suit.

Costco argued that, by virtue of the Supreme Court’s holding in Quality King v L’Anza, Omega’s rights were exhausted by the first sale of the watches abroad.But in 2009 the Ninth Circuit agreed with Omega that Quality King could be distinguished, since there the first sale had taken place in the USA (with the goods subsequently being exported and then re-imported), whereas in Omega’s case the first sale occurred abroad.Quality King, said the Ninth Circuit, was silent about the situation in which the first sale occurred outside the USA.On this basis, the Ninth Circuit held that the first sale abroad did not exhaust Omega’s rights.

The grant of cert in Costco caught the attention of the patent community because of the Federal Circuit’s holding in a series of cases involving Fuji Photo Film and Jazz Photo Corp. (see, e.g. here, here and here).In the Fuji/Jazz cases, the CAFC ruled that the importation of patent-protected cameras by a third party did not infringe the patentee’s rights if those cameras were originally sold in the USA, exported, and then subsequently purchased by the third party and imported back into the USA.In such a case, the patentee’s rights were exhausted by the first sale.However, said the CAFC, if the cameras had first been sold outside the USA (i.e. they were manufactured and first sold abroad), then the first sale did not exhaust those rights.

Thus in substance, the CAFC’s holding in the Fuji/Jazz cases is analogous to the Ninth Circuit’s holding in Costco.The question then arises, if Omega is reversed by the Supreme Court, will that reversal also apply to patent cases?In other words, would extension of first sale exhaustion in a copyright case to first foreign sales mean that the doctrine of exhaustion in patent cases also extends to foreign first sales?

Technically, exhaustion in the two situations can be distinguished: copyright exhaustion is based in the copyright statute, 17 U.S.C. 109(a), whereas exhaustion in patent cases is doctrinal, owing its existence to judges rather than the statute.However, beyond this formal distinction, it’s possible to identify underlying policy reasons why universal exhaustion should apply with respect to copyright but not with regard to patents.

For starters, copyright holders (think Disney, the RIAA and the like) have pushed to make copyright universal, and in many ways this has been accomplished through international copyright treaties.Indeed, outside the USA, you don’t need to register a copyright to enforce it – the second you’ve created an original work in one treaty country that’s embodied in a tangible medium, copyright inheres in that work in all treaty-member countries.So it’s not a stretch to say that a first sale of a copyrighted work should exhaust the rights in that work, since the rights are in effect universal.Patents, in contrast, remain territorial – you still need to register the patent in each jurisdiction of interest in order to enforce the patent in that jurisdiction.Which would correlate with national rather than universal exhaustion upon sale of a patented product by the patent holder, in accord with the CAFC’s position.

These differences in turn can be attributed to the different natures of the things protected by the two bodies of law, and the types of protection afforded.Patents have a high threshold for validity, viz. novelty, non-obviousness and utility on the substantive side and enabling description (and in the USA, written description) on the formal side.Furthermore, patents can protect more than is actually disclosed in the patent, and more than just the commercial embodiment of the invention sold by the patentee – in fact, in some countries a patentee doesn’t even need to work his invention in order to for his patent to remain valid.Also, patents are intended to be a commercial tool, and a means of disseminating knowledge.In contrast, copyright has a low threshold – originality – and in principle is narrowly limited to the particular expression embodied in the tangible medium.While copyright has pecuniary component, it also has a personal component attached to it (think of moral rights in civil law jurisdictions), unlike patents.And the dissemination of useful knowledge is not a prerequisite for copyright, which can in inhere in works of art as well as books.

So it’s possible that even if the SCOTUS decides that under the copyright statute, a first sale abroad can exhaust the copyright holder’s rights, the CAFC could distinguish patent law and still hold that such sales do not exhaust patentee’s rights.In fact, in the Fuji/Jazz cases, that’s exactly what the CAFC did: in those cases, the CAFC stated – in contrast to the view adopted by the Ninth Circuit in Omega – that Quality King held that first sales, irrespective of where made, exhausted a copyright holder’s rights, but since Quality King was a copyright case, it was distinguishable from patent cases.Thus, said the CAFC in the Fuji/Jazz cases, Fuji’s first sales abroad did not exhaust its patent rights.

However, it’s also possible that the SCOTUS will treat exhaustion under the copyright and patent contexts as equivalent.That’s what happened a few years ago in eBay v MercExchange, in which the Supreme Court explicitly drew parallels to the copyright context in reiterating that patent cases are no different from any other kind of case in which the equitable remedy of injuction is sought.There the Supreme Court reminded the CAFC that, just as in copyright cases, all four factors of the standard test for determining if an injunction is warranted (irreparable injury, remedies at law insufficient to compensate for the injury, balance of hardships, and no disservice to the public interest) apply when awarding injunctions in cases of copyright infringement.

At the end of April, the Second Circuit cited eBay in vacating an injunction given to the heirs of the late J.D. Salinger.Plaintiffs had alleged that another author’s use of the character of Holden Caulfield, the protagonist in Salinger’s The Catcher In The Rye, in a book set sixty years after Catcher (titled, appropriately enough, 60 Years Later: Coming Through The Rye), infringed Salinger’s copyright in Catcher.The district court found that (1) Salinger had a valid copyright in Catcher and the Holden Caulfield character, (2) absent a successful fair use defense, Defendants infringed Salinger’s copyright in both Catcher and the Holden Caulfield character, (3) Defendants’ fair use defense was likely to fail, and (4) on the basis of the Second Circuit’s own precedent, which enunciated a two-part test, a preliminary injunction should issue.The Second Circuit agreed that under its own precedent, an injunction should issue, but that eBay had overturned that precedent and must be adhered to.Since the District Court had not considered all four eBay factors, the Second Circuit vacated the injunction and remanded to the District Court.

It’s unclear if the equivalence drawn between patent and copyright cases by the Second Circuit has implications for the question of first sale exhaustion.As the Second Circuit noted, “eBay strongly indicates that the traditional principles of equity it employed are the presumptive standard for injunctions in any context”, that the Court in eBay cited to two non-IP cases in noting the proper four-factor test for injunctions, and that the Court had noted that “the creation of a right is distinct from the provision of remedies for violations of that right”.In contrast, in Omega, no one is asserting that exhaustion by first sale is a universal legal principle in all areas of law – and indeed, unlike injunctions which are applicable in a wide variety of circumstances, exhaustion is a notion that only makes sense in a narrow sphere of law.

So the SCOTUS may decide Omega narrowly, and limit its holding to copyright cases; or it may explicitly state that patent cases also have first sale exhaustion.The latter would be bad news for many companies that practice price discrimination across jurisdictions, but particularly drug manufacturers, who utilize the fact that a sale in one jurisdiction doesn’t exhaust their patent rights in another jurisdiction.This enables drug manufacturers to charge significantly more for their patented drugs in the USA than in many other jurisdictions, where those prices are often controlled by the government.